It’s been 19 months since Amec Foster Wheeler revealed that it was being investigated by the Serious Fraud Office over allegations relating to Unaoil, the Monaco-based energy consultancy. Since then, we’ve not heard a peep from Wood, the former John Wood Group that is the new owner after agreeing a £2.3 billion deal to buy its rival oil services business that year.
Unfortunately, that is the way with these investigations, which can drag on for years, and in the meanwhile investors have to live with the uncertainty that inevitably hangs around the share price, in this case for a business that otherwise seems to be trundling along rather well.
Wood was formed in 1912 as Wood & Davidson, which was involved in fishing as well as oil services, before splitting in 1981 and listing in 2002. A constituent of the FTSE 100, as well as providing consulting, engineering and other support services to the oil and gas industry, it also works in power, environmental infrastructure projects, clean energy, mining and nuclear. It employs 60,000 staff in more than 400 offices in 60 countries and is on course this year to generate as much as $11.1 billion in revenues and profits before tax and writedowns of about $625 million.
Wood’s business operates as four divisions. The biggest two are both called Asset Solutions, in essence engineering and consulting services, weighted towards oil and gas and divided geographically into the Americas and then Europe, Africa, Asia and Australia.
Specialist Technical Solutions provides similar services in particularly complex areas and includes work at nuclear reactors, chemical plants and renewable energy projects. Fourth, and inherited from the Amec Foster Wheeler deal, is Environment and Infrastructure solutions, which is also technical, but includes work on environment-related permits, monitoring and systems integration.
As an illustration of the kind of new and more diversified areas in which Wood is moving, at the end of December it won a $66 million contract to design, make and supply a digital control systems framework for the Sellafield nuclear site in Cumbria. Before the takeover, about 80 per cent of the work carried out by Wood was in oil and gas; now, about a third of the enlarged group’s activities are in other areas. The benefits are showing through in every area except for the share price, which remains pegged to the price of Brent crude. Revenues in the first six months last year more than doubled to almost $5.4 billion but, while underlying profits rocketed, accounting charges linked to asset writedowns and impairments against a business up for sale sent it to a $52 million loss.
It feels reasonable to accept these kinds of bumps on the back of a clearly transforming combination and, with trading weighted towards the second half, the picture for the full year is considerably rosier and Wood is expecting profits before tax and writedowns of as much as $630 million. Wood has been able to generate an additional $500 million of revenues as a result of joining the two companies and has increased its cost savings target from $170 million to more than $210 million.
All four of Wood’s businesses are performing well, boosted by work on shale drilling projects in the US and higher spending by governments and industrial operators.
The shares have been weak, though, up 7p to 512p yesterday, well below its level at the time of the takeover. They trade on a lowly multiple of ten times forecast earnings for a prospective yield of 5 per cent. The stumbling block is the oil price, which is predicted to remain under pressure, making it hard to see a catalyst to take Wood’s price higher.
ADVICE Avoid for now
WHY Strong business with prospects, but the shares look stuck in the doldrums
Boku
At first glance, Boku’s business model looks distinctly odd. In essence it is a technology business, whose payment-processing system enables people to buy digital products and charge the cost to their mobile phone bill.
Instinctively as a UK-based observer who pays a fixed monthly mobile phone bill and pays for everything else using a bank account or credit card, the idea seems daft. This is a pretend bank, isn’t it? Why not just use a real bank instead?
Yet what might feel out of kilter in the UK is commonplace in other parts of the world, most notably in Asia and in particular China and Japan. About 13.5 million people a month worldwide use Boku to buy digital goods, which in practice often means signing up to a streaming service such as Spotify for music or downloading a song on Itunes. Their payment method is their mobile number and the money comes straight out of a topped-up phone account. That is a sizeable number but it is not the point. The consumer is not really Boku’s customer: it is the digital merchant — Apple, Google, Spotify, say — and the telecoms company, which it stands between in a transaction, taking a fee on the way.
Boku was founded in 2009 and floated on the stock market for 59p a share in late November 2017. The shares rocketed to as high as 184p in early September last year until falling foul of the heavy technology sell-off in October. They were trading flat yesterday at 82p, valuing the group at barely above £200 million.
When it listed Boku was loss-making. It finally turned a profit late last year but, to the irritation of some investors, promptly reversed that by buying Danal, which provides identity services for mobile users, for an upfront $34 million. The cost of integration and investment will keep Boku loss-making until probably next year.
Boku is clearly highly speculative: it is losing money, pays no dividend and is a growth stock that has not been growing. Yet it clearly has prospects, particularly as it moves into additional services and geographies, all linked to mobile billing. Accept the argument that it has been oversold and it looks enticing.
ADVICE Buy
WHY Intriguing idea that is oversold but could go places